Canada Dollar Falls 1st Time in 5 Days on U.S. Jobless Claims

Canada’s dollar fell for the first time in five days as U.S. jobless claims reached the lowest level since 2006 last week, boosting bets the Federal Reserve will slow asset purchases at its policy meeting next week.

The currency erased gains after earlier touching an almost four-week high versus its U.S. peer as fewer Americans than forecast filing for jobless benefits bolstered the case for the U.S. central bank to scale back the quantitative-easing program some consider negative for the U.S. dollar. The Fed meets Sept. 17-18. The data followed a U.S. payrolls report last week that showed slower-than-projected August job growth, while Canada added positions at three times estimates.

“As the Fed starts to wind up its QE program, more Canadian weakness should be expected against the U.S. dollar,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank. “The economic recovery in Canada is still weak and continues to lag the U.S, for the most part.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell less than 0.1 percent to C$1.0323 per U.S. dollar at 5 p.m. in Toronto after touching C$1.0306, strongest since Aug. 16. One loonie buys 96.87 U.S. cents.

Bonds, Oil

Canada’s benchmark 10-year government bonds were little changed, yielding 2.78 percent. The 1.5 percent security maturing in June 2023 traded at C$89.18.

Futures on crude oil, Canada’s largest export, added 1.1 percent to $108.75 per barrel in New York and the Standard & Poor’s 500 Index of U.S. stocks fell 0.3 percent.

The loonie ended its longest winning streak since July after first-time claims for unemployment insurance in the U.S. fell by 31,000 to 292,000 in the week ended Sept. 7, which also included the Labor Day holiday, according to Labor Department data released today in Washington. The median forecast in a Bloomberg survey called for 330,000 applications.

Loonie weakness is “a response to the U.S. data,” said Greg Anderson, New York-based head of global foreign exchange strategy at Bank of Montreal, adding today’s price action may signal the Canadian dollar’s rally is over. “The Fed may see past the weakness in the August report and taper anyway.”

The Federal Open Market Committee will decide to reduce monthly purchases of Treasuries to $35 billion from $45 billion, according to the median of 34 responses in a Bloomberg survey of economists. Policy makers will maintain mortgage-bond buying at $40 billion, the survey shows.

‘Slightly Hawkish’

The loonie strengthened earlier after the Reserve Bank of New Zealand said interest-rate increases “will likely be required next year” as the economy strengthens and inflation picks up, spurring bets Canada will follow its commodity-exporting peer’s lead.

New Zealand’s dollar, or kiwi, advanced against all 31 of its most-traded rivals, gaining 0.7 percent to 81.38 U.S. cents.

“The RBNZ was interesting yesterday because they certainly shifted from a slightly hawkish bias to a fully hawkish bias, suggesting they’ll hike rates next year,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS), said by phone from Toronto. “The performance of the New Zealand dollar is interesting in relation to Canada, as at some point the Bank of Canada will likely make a similar shift.”

The loonie has fallen 0.6 percent in the past month against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The only currencies to gain in that period were the Australian dollar, the British pound and the kiwi. The U.S. dollar fell 0.7 percent.

To contact the reporters on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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